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Business Viability: JustCookBooks.com
The JustCookBooks.com internet company is set to launch in six months. With the following calculations, I believe it has the potential to be a success.
First of all, the estimated annual cost consists of the following items:
- Technology (Web design and maintenance) $5,000
- Postage and handling $1,000
- Miscellaneous $3,000
- Inventory of cookbooks $2,000
- Equipment $4,000
- Overhead $1,000
This makes for a total of $16,000 in annual costs, not including product cost. With an expected sales of 22,000 cookbooks a month at $20 cost for each book, the monthly cost for cookbooks is $440,000. In order to extend this to estimate a yearly cost: $440,000 x 12 = $5,280,000. Using these two figures, we can establish an estimated yearly cost to operate JustCookBooks.com:
Yearly Book Cost + Estimated Annual Operations Costs = Total Annual Cost
$5,280,000 + $16,000 = $5,296,000
Total Yearly Cost = $5,296,000
Now that we know the annual cost of JustCookBooks.com, we must explore price points. The cookbook cost is $20 each and the average retail price is $30. This means that by using a demand curve formula, we can learn more about what the best price for a cook book would be. In this exercise, the equation for demand is Q = 40,000 – 500P, where Q = the number of cookbooks sold per month P = the retail price of books. We will show here what the demand curve would like given three different prices per book: $25, $30 and $40. As these equations:
- Q = 40,000 – 500(25) = 27,500
- Q = 40,000 – 500(30) = 25,000
- Q = 40,000 – 500(35) = 22,500
According to the curve, there is approximately a $5000 a month difference between the $25 and $35 price point. This is quite substantial, particularly if the business owner was previously bringing in a $50,000 annual salary.[“Write my essay for me?” Get help here.]
In order to decide if this business is viable, we need to bring together these first two sections. Extending these months amounts to become yearly, we can project yearly sales:
- $25 – 6,600,000
- $30 – 7,920,000
- $35 – 9,240,000
Next, using the costs determined in the first section, we can do the following equation:
- $25 a book : 6,600,000 – (costs) 5296000 = 1304000
- $30 a book : 7,920,000 – (costs) 5296000 = 2624000
- $35 a book : 9,240,000 – (costs) 5296000 = 3944000
Whether fewer books are sold at higher prices or more are sold less expensively, this business definitely has the possibility to bring in profits. Based on the calculations above, this business is definitely worth pursuing. There is clearly an opportunity for profit. Giving up a salary of $50,000 annually as well as part time income in order to run this business is certainly worth the sacrifice. The market structure for this type of niche internet sales business is monopolistic. By providing a very specific type of profit and having a large amount of control over pricing, there is a greater freedom to adjust prices and inventory. This freedom to control profits and inventory also makes giving up a yearly salary less risky.[Need an essay writing service? Find help here.]
Success is never guaranteed in a business venture, but this particular business provides many opportunities to help a business owner succeed. While traditional marketing efforts and advertising are always advantageous, doing business on the internet adds increases the list of ways to get the word out. It also allows a business owner to easily survey clients as well as track sales and find patterns in order to improve sales.
Particularly in a niche market like cookbooks, pricing strategies can vary greatly. It is clear from the graph above that even changing the cost of a single item by a few dollars can bring about a huge change in income. As shipping will be involved and e-commerce processes, it would be completely justified to add various charges. It is best not to try to makemoney off these sorts of fees, but they can help keep operating costs more under control. In a sales niche like bookselling, there is a great opportunity to provide special rebates, book club offers and special editions at increased rates. Also, creating a membership club can allow shoppers to receive special discounts and it has the added bonus of giving the business owner a list of those who have already shown their interest in the company.[Click Essay Writer to order your essay]
Overall, I think this business would be a good investment. The risk-to-reward ratio seems such that the business owner is more likely to enjoy the change and make money, than miss her or her salaried position.
